Profits slide at TSB but management insists new technology platform will end cost headache

TSB staff will shortly begin using its new technology platform (Source: Getty)

Jasper Jolly

Profits at high street challenger bank TSB fell in the third quarter as fees paid to former owner Lloyds for running its computer systems rose.

The bank, which was acquired by Catalonian lender Banco Sabadell in 2015, announced statutory profits before tax of £134m, a 17 per cent slide.

Operating costs rose by 18 per cent year-on-year to £612.4m, as Lloyds IT outsourcing fees rose by £90.5m. However, underlying profits, stripping out the effects of one-off costs fell by only 1.3 per cent.

TSB is also gearing up to apply for funding for challenger banks from Royal Bank of Scotland as a remedy for competition concerns.

Chief financial officer Ralph Coates told City A.M. the bank will be at the “front of the queue” for part of the grant money, which could be a “big change” in 2018.

“Some of the big five banks have been allowed to play, but we hope that common sense prevails and it’s the challenger banks” who benefit, he said.

Diminishing cost headwinds in 2018 once the lender moves onto new computer systems will also provide a boost for the bank’s financials, Coates said.

He said: “We will look to reverse the cost increases we saw this year into next.”

TSB is preparing to extricate its computer systems from Lloyds, which was forced to sell the lender after receiving state aid during the financial crisis. The bank will shortly begin showing its staff the new platform before rolling it out more broadly by the end of the first quarter of 2018.

The bank has already delayed the implementation of the new system, saying it did not want to go through the complicated process at a time when interest rates are expected to rise. However, Coates said the bank is now trying to find a “landing slot” as it juggles the capacity of external providers.

The bank hopes its soon to be independent systems will be able to give it a competitive edge over larger banks, allowing it to introduce new features quicker such as the recent introduction of iris scanning as well as the coming facial recognition in its mobile app, announced today.

TSB’s customer growth continued at a steady rate, with a 17.5 per cent year-on-year increase in new mortgage loans. Customer deposits grew to £30.3bn, up 4.5 per cent year-on-year.

The bank is targeting continued growth, but will not “forsake profits”, Coates said. Meanwhile, he believes the bank is well placed to see off competition from digital-only banks, with a “best of both worlds” offering.

“The combination of a really strong branch network and a strong digital offering gives you the best horsepower,” Coates said.